Grim Fandango – the reboot of this LuacasArts classic speaks volumes about where games are

As a city, Los Angeles was built to look forward. During the 1950s its architecture took on a futuristic sheen, all swooping rocket ship angles, like a giant piece of concept art from The Jetsons. Now the buildings have a quaint nostalgic look – they are relics, and that is what a lot of people have come to desire. The future is kind of hard to face these days. Looking back is so much easier.

It's fitting then that this is where E3, the biggest show in video gaming should live. Because right now, the games industry is looking backwards too. Although both Sony and Microsoft have launched shiny new consoles, that are selling well and doing okay, there is a lack of self-confidence about the way games are going. The traditional industry, with its multimillion dollar budgets and boxed games made by hundreds of people is in a quiet crisis. What do people want? These guys aren't sure anymore.

Witness Sony's pre-E3 press conference on Monday night. There were a few original announcements – a gothic chiller from Dark Souls director Hidetaka Miyazaki, entitled Bloodborne; a gruesome horror romp from Suda 51 and Grasshopper Manufacture; something fresh and beautiful from the art director of Journey in the form of undersea odyssey, Abzu. But the revelations that got everyone cheering were the ones that looked back.

Grim Fandango, a cult PC adventure from the 1990s is returning, courtesy of its much-loved creator, Tim Schafer. The game, a joyous, clever and eccentric take on various afterlife myths, follows spiritual travel agent Manny Calavera whose job is to guide souls through the Land of the Dead. It is funny and eccentric, and it always threatened to come back. Many veteran gamers, who idolise Schafer and his colleagues at the old LucasArts development studio, are utterly overjoyed that it is happening. And that's great, really it is.

But Sony also leaned heavily on the announcement that Grand Theft Auto V is being remastered for next-gen consoles and the PC, and that the streaming games service PlayStation Now is to get hundreds of PS3 titles, as well as older classics from the PS1 and PS2 eras. Familiar, proven titles being repackaged and re-sold.

Something old, something borrowed…

At the Microsoft conference earlier in the day, some of the biggest cheers were for nostalgic rediscoveries – the Xbox title Phantom Dust is coming to Xbox One. Crackdown, the open-world adventure from 2007 is to get a reboot, with original designer Dave Jones (responsible for Lemmings and Grand Theft Auto) at the helm.

This is natural in a way. Games look back as well as forward, constantly re-purposing established genres and ideas for a new generation. Much of what we call innovation in the mainstream industry today is about combining familiar genres. The giant space opera Destiny, for example, which is on course to be the most expensive game ever made ($500m and counting), is essentially Bungie's Halo mixed with Gearbox's RPG-flavoured shooter, Borderlands. Meanwhile, long-running series' and sequels totally dominate the development landscape for what's left of the Triple A studios. Tomb Raider, Grand Theft Auto, Uncharted, Far Cry, Assassin's Creed… these titles dominated the chatter from the press conference day at E3 2014. They have been there for years.

There is a wider malaise, perhaps. As William Goldman famously said about the movie business, nobody knows anything. And in an era of $100m game development budgets, not knowing anything is a super expensive and destructive way to exist. Add in the fact that smartphone games have ripped the established norms apart, introducing new business models and diluting the user-base, and you have the most challenging era since the great gaming crash of 1983.

Games publishers aren't sure what people want; they don't know who gamers are anymore. They have never been so unsure. Sequels were always the safe route, but now they have been codified into a factory-like production rota. Big publishers like Activision and EA rotate development teams on mega franchises like Call of Duty and Battlefield to ensure regular iteration. And Ubisoft mass-produces game mechanics across its range, so that Far Cry, Watch Dogs and Assassin's Creed share identical methods of progression and environmental unlocking. What the traditionalists have learned from the mobile industry is that iteration works – iteration is good. Try something and if it works, reproduce endlessly, if it doesn't, kill it. Kill it right now.

Video games and nostalgia

E3 is all about nostalgia really. The industry it represents - with boxed games and big old publishers – is a relic of another era. EA gets much of its revenue from selling digital goods and downloadable content now – games are actually adverts for the content to follow. A big announcement at Sony's press conference was that the PlayStation 4 would be able to easily handle free-to-play games and that dozens are already in development. You could almost see the tumbleweed blowing across the stage. Core gamers don't want to hear that. Core gamers, weirdly, cry for innovation then cheer loudest for old stuff they recognise. You know, when games were games and you paid once and they were yours forever.

As Philip Larkin once put it: "Never such innocence again". Grim Fandango speaks to us about another era in which clever people made games they wanted to make in small teams and they were funny and challenging, and you had to be good at them. Big games don't want you to master them anymore. They're desperate for your affection. They look at Candy Crush Saga and think, oh right, people want us to do the game for them now? Remember when Uncharted started to solve the puzzles for you if you struggled over them long enough? That's the future, guys, that's probably the future.

The industry is well into its digital age, but it hasn't worked out how to sell that vision. All the talk of cloud-based server infrastructures and seamless campaign multiplayer and second screen enetrtainment aren't chiming with anyone. The Wii U has tanked because a lot of people just don't get it. Just don't get why you need a personal screen - even though later that day they'll sit watching TV with a tablet on their lap. No games company has worked out how to communicate that three-way relationship yet.

It is no wonder Sony and Microsoft are crawling over each other to sign the indies. No wonder they're looking at the procedurally generated space game No Man's Sky and Capy Games' adventure Below with awe and wonder. These are innovations they understand - they're not about business models, they're not about new audiences who are hard to predict, they're about new ideas within the scope of traditional games. Indie developers are nostalgic but they have the freedom to take the mechanics forward and play with them, just as Tim schafer played with the idea of point-and-click adventures in the 1990s.

The industry of fear

All around the industry there is fear and loathing, simmering beneath the forced smiles of corporate optimism. Microsoft mis-read its core audience so badly last year it almost killed Xbox One before it was born – those guys are terrified.

New stuff will come, but it's almost like the industry has to rediscover itself through its past, a sort of purging reconnection with a time when everyone knew what they wanted – clever, challenging games that took you days of work to master.

Outside the E3 convention centre, the crumbling freeways buzz with life, carrying people though this city of lost dreams and curtailed ambitions. Los Angeles is the perfect place for the traditional games industry – a city built on a future that once seemed so appealing, so exciting, so tangible. People felt they could reach out and touch it. But the future isn't like that. It doesn't look like the Jetsons. It is a vast shadow looming over everything. And it has never seemed so hard to grasp.